Profits down for BCA, Lippo, up for BII, Panin

Rendi A. Witular The Jakarta Post Jakarta

During the first semester of this year large-sized Bank Central Asia (BCA) and Bank Lippo lost ground over their net profits while their rivals Bank Internasional Indonesia (BII) and Bank Panin advanced forward with impressive growth.

Banking analyst M. Fendi Susiyanto from BNI Securities told The Jakarta Post on Wednesday that the decline in the first two banks' profits was mostly attributed to the lower interest income earned from the government's recapitalization bonds.

"The income from recap bonds was declining because the benchmark interest rates fell drastically during the second quarter," said Fendi.

The central bank has been cutting the one-month SBI rate lower by around 30 percent since early this year to the current level of 9.23 percent.

Fendi explained that the decline had heavily impacted on BCA and Lippo because their recap bonds mostly consisted of variable net bonds carrying floating indicative rates.

Floating rates were considered too risky for a bank that heavily depended on revenue from the yield of recap bonds because when the rates declined, then their income from interests would also decline, Fendi said.

Fendi gave out an example that 95 percent of BCA's total recap bonds currently worth Rp 40.3 trillion carried a floating rate, which made it very sensitive to any fluctuation in the benchmark rates.

Government bonds make up around 35 percent of BCA's assets and about 25 percent of Lippo's.

"BCA and Lippo must have anticipated the fluctuations, but I do not know why they are still relying on the bonds," said Fendi.

He forecasted that the profits of the two banks could plunge further at the end of the year if they failed to significantly unload their recap bonds, cut the cost of fund and increase the channeling of lending.

BCA's net profit for the first half plunged by 33 percent to Rp 1.02 trillion (US$120 million) from Rp 1.52 trillion in the same period last year while Lippo's fell to Rp 26.4 billion from Rp 78.1 billion.

The capital adequacy ratio (CAR) of BCA, the country's third largest bank in terms of assets, also declined to 38.25 percent from 41.55 percent and Lippo's to 23.21 percent from 26.48 percent.

The drop in Lippo's profit is worrisome because the government, which controls 55 percent of the bank, plans to sell a 51 percent stake in it in the fourth quarter.

Fendi suspected that the bank's bad performance could lower the price of the bank's shares, which in turn would open the way for the former owner of Lippo, the Riyadi family, to repurchase the bank cheaply.

Under the current price, the government's 55 percent stake in the bank would only be worth around Rp 600 billion, way below the Rp 7.2 trillion in state funds the government had injected for its recapitalization in 1999.

Meanwhile, the competitors of the two banks, BII and Panin, managed to record better performances last semester.

BII, which is also a recap bank with government bonds currently worth Rp 16.6 trillion, booked a net profit of Rp 143 billion as compared to the losses of Rp 251 billion.

The surge was mainly driven by an increase in interest income to Rp 311 billion from Rp 245 billion. The bank's CAR has soared to 25.88 percent from -58.09 percent.

Meanwhile, Panin, a bank which managed to survive the financial crisis without receiving any bailout from the government, recorded a jump in the net profit mostly from interest and fee-based incomes.

The company's profit rose by more than 1,000 percent to Rp 196 billion in the first semester from just Rp 16.8 billion in the same period last year. The bank's CAR has also increased to 34.6 percent from 32.9 percent.

Bank Danamon announced late on Wednesday that net profit for the first half increased by 49.6 percent to Rp 615 billion from Rp 411 billion in the same period last year on the back of higher interest revenue and healthy fee-based income.